Will the 40p income tax band be scrapped?


George Osborne

George Osborne is under pressure to get rid of the higher-rate tax band in the Budget this month. A Conservative pressure group has proposed that the 40% tax band ought to be scrapped altogether, which would save more than two million middle-class workers £2,000 a year.

So can we expect this announcement in The Budget?


Middle class taxpayers have been feeling the pain for years. Several years of freezing the threshold at which the higher rate of tax is due means that while 3 million people paid tax at this level when Osborne took office, now 4.4 million people do. This April, that pain is set to get more acute, as the threshold for paying this tax will fall from £32,010 to £31,865.

The Conservatives have been criticised for doing too little for the 'squeezed middle' who earn between £40,000 and £60,000, and the pressure group has come up with the idea that they ought to scrap the 40% tax rate. Instead, they argue that the level at which the 45% rate kicks in ought to be reduced from £150,000 to £62,000.

Writing in The Telegraph, director of the group David Skelton said: "George Osborne should take a major step to unwind the undesirable drift towards an ever higher proportion of the working population paying higher rate tax. In doing so he could relieve the pressure on the squeezed middle, so many of whom have borne the burden of paying for Labour's profligacy."

His calculations show that only those earning £85,000 or more would be worse off under the proposals. He added: "When he was defending the 1909 "People's Budget", David Lloyd George said that "we are placing burdens on the broadest shoulders". Under our proposals, the very richest would pay a little more, while the overwhelming majority of working people would benefit, some of them considerably."

Will it happen?

This has certainly opened up the debate, and there's no question that the 40% tax rate is now a candidate for some tinkering at some point in the future.

However, there's really very little chance that anything will happen this time around. Osborne has already been asked about it, and indicated that further increases in the threshold at which people start paying basic rate tax are his priority. The consensus is that Osborne will announce another increase to this in the Budget - expected to be at least £500, and to kick in just before the election next year.

But what do you think? Is it time for the middle class to get some breathing space from their financial squeeze - or are there people at the lower end of the income spectrum who need it more?